If 2016 was the year of the dead rock star, 2017 is already shaping up to be the year of the radio deal. The year got off to a roaring start with one of the biggest ever – the Entercom/CBS merger, changing the hierarchy of the entire radio industry.
As a result of Entercom having to spin off several stations, there will soon be a series of sales, swaps, or combinations that will likely involve several companies reconfiguring their station rosters in many U.S. markets.
And then there’s the much-discussed fates of both iHeartMedia and Cumulus, two mega-companies that have been facing mega-debt for years. They are the twin 800 pound gorillas in the radio room, and many in the industry believe another big shoe will drop possibly before this year is out.
A recent article in Variety by Gene Maddaus – “iHeartMedia CEO Bob Pittman’s Efforts may Not Be Enough to Avoid Looming Bankruptcy” – is a fascinating look behind-the-scenes at radio’s biggest company, its iconic leader, and the challenges it is facing.
In an even-handed fashion, Maddaus breaks down the good, the bad, and the impossible behind Pittman’s efforts to transform the former Clear Channel into a multimedia company while kicking the massive debt can down the road.
In the article, iHeart board member Irving Azoff puts it this way: iHeartMedia is an “incredible company” with a “terrible balance sheet.”
So with all these rumors of pending changes, moves, and shifts, many, many radio stations could be on the market. But when you talk with industry insiders, they will often tell you there simply aren’t a lot buyers out there who can absorb a significant number of radio stations.
But there are overseas.
And that’s why the quiet FCC ruling late last month about an Australian company getting the governmental seal of approval to own 100% of Frontier Media, is worthy of discussion. These Aussies have been given the green light to purchase American radio stations in Juneau, Alaska and Texarkana, Arkansas.
The FCC has acknowledged the circumstances behind the deal are specific to this situation involving Australian nationals Richard and Sharon Burns, but the precedent has been set. And given that the ruling was one of the first decisions under newly minted Chairman Ajit Pai, speculating about more foreign ownership of U.S. radio stations isn’t crazy.
At a time when America seems to be looking inward, the idea of investors in China, Germany, or Saudi Arabia purchasing stations in Omaha, San Diego, or Wilkes-Barre is novel. And it reminded me of something I remembered hearing at a Jacobs Media Summit in Austin, Texas almost a decade ago.
A couple months before the Obama/McCain election in November, 2008, we put together a “President of Radio” presentation featuring nine of the industry’s best and brightest. Each had 3-5 minutes on stage to offer their opinions about “How To Make Radio Great Again.”
There were some fascinating ideas shared that morning, rousing speeches from these broadcast mavens, and a full house of radio managers cheering them on . Eric Farber (then with Radio & Records) came on stage wearing a tiara. It turned out she was radio’s first female President. Gerry Boehme (then with Katz) gave an especially energetic address, firing up the radio base.
But perhaps the most prescient stump speech came from a guy who’s no stranger to the political arena, Edison’s Larry Rosin. Here’s an excerpt from Larry’s “platform” nearly eight years ago:
“If I’m elected President, I will immediately send Congress a bill calling for the elimination of the cap for foreign ownership of American radio stations. Currently, that cap is 20%. In other words, the ownership of any given station can’t be more than 20% from a foreign individual or company. In today’s global economy, why are we not allowing capital from anywhere in the world to be invested in American radio stations?
OK, not anywhere. We will have a strict test of fit and proper ownership. The FCC will have to approve ownership as it does now by the way, to make sure that Osama Bin Laden doesn’t buy radio stations. But think about it – if the Mexican ultra-billionaire, Carlos Slim, wanted to buy radio stations in Los Angeles or anywhere, why shouldn’t we allow him to do so?
If Richard Branson thinks that putting his Virgin brand on American radio stations would work, shouldn’t he have the chance? Or public companies from Europe, India, or somewhere if they wanted to?
The basic point is many of these people or entities could just write a check and buy American radio stations. They don’t have to put together their own loans and their own financing, and make money by cutting things once they buy the radio stations. And you guys are typically making tremendous returns at your radio stations. Most importantly, they can invest in all the initiatives that we all know we need to take radio to a more positive future.”
(I should add that of the nine “Presidents” we featured back in 2008, Larry is the only one of the group still with the same company in the same role.)
I know for a fact Chairman Pai was not in Austin that day at the Jacobs Summit. But here we are two election cycles later, and this is now an idea that has a precedent. From the cruel winds of deep debt, to several rounds buying, selling, trading, and swapping stations, different financial and ownership models could help reshape the American radio industry.
Upon issuing the ruling in the Burns’ favor, the FCC noted, “We find that the public interest would not be served by prohibiting the foreign ownership of Frontier, as the ultimate controlling U.S. parent.”
And as Larry suggested more than eight years ago, foreign ownership of U.S. radio companies could usher in a period of change not just in ownership, but in the ways stations operate. After attending the Radiodays conference in Europe over the past few years, it is a fact that many radio companies outside North America run their stations quite a bit differently. An infusion of new thinking and new operational philosophies could alter the competitive foundation of the industry.
At a time when the Trump Administration is moving from policies that reflect globalism to a philosophy clearly more nationalistic, an open door policy for foreign ownership of radio by a new-thinking FCC could be a game-changer for an industry that has historically been slow to change.
Billionaires in countries from Spain to India to Sweden might rewrite the financial model for radio companies, from research to marketing to sales, helping “make radio great again.” It’s hard not to imagine positive things coming from the outside influence of other countries on our systems.
OK, maybe the FCC draws the line at Russia.
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Jim Byard says
I believe the idea of foreign ownership(with those from friendly countrys) is great. Billionaires can buy several properties without hurting their own bottom line. And the infusion of money(for upgrades) and ideas would be outstanding. So many companys are struggling and this would not only help them but the economy of the areas they serve.
Fred Jacobs says
Thanks, Jim. Given how the radio industry is evolved, it seems like a no-brainer. I’m looking forward to reading other opinions throughout the course of the day. Appreciate you commenting.
Dianna Kelly says
As much as I’d like to see the industry stay healthy financially, the reason the rule was in place was to protect foreign influences from completely taking over our airwaves. A bigger percentage than 20 percent, I could see….but 100 percent? What happens if someone bought 100 percent of iHeart? And then CBS/Entercom? etc., etc…..? If you let smaller chains be bought out by international owners, you’re setting a precedent so it COULD conceivably happen. And not all of them like the American people. What happens when say, they decide they don’t LIKE airing the Emergency Broadcast System? Or they decide no one needs to know how much of the country they’re “incorporating?”
Fred Jacobs says
Obviously, there would have to be some serious vetting (there’s that word again). The FCC took a long look hard look at Richard and Sharon Burns before allowing them to 100% of Frontier Media. They’ve have to carefully scrutinize any buyer from any country. But you bring up bona fide concerns, Dianna. Thanks for taking the time to comment.
Mike Allen says
I’m actually in favor of foreign ownership as I think a dose of Virgin might shake up the business and get us out of a risk adverse crouch.
One sad metric though…After reading the IHeart story in Variety…Only 2 comments.
Seems like the pool of people that are interested in the business from the entertainment end of the pool is limited right now.
Fred Jacobs says
Maybe, but would we be totally surprised if an Amazon or a Google considered a radio company? Keep in mind, Warren Buffett and Jeff Bezos are buying newspapers. So you never know.
Fred Morton says
I think this is long, long overdue. Many of the rules and regulations of the 1940s have almost no bearing on the world we live in today. In addition to changing or eliminating the foreign ownership cap, the broadcast-newspaper ownership ban has outlived its usefulness and should also be eliminated. I think that when Cumulus and iHeart go through the massive changes that we all see coming, there will be many excellent facilities on the market. And other than some dot com billionaires, who else has the money to buy them, even at bargain basement prices? Perhaps it’s time for someone with a new vision to revitalize the industry that many of us have worked in for all of our professional lives and love dearly.
Dianna Kelly says
Or they could outsource all our jobs to their countries.
Fred Jacobs says
Fred, you’ve nailed the upside of this policy – bring smart, big shooters from around the world into American radio. Of course, some of these other commenters express some fears, too. Thanks for chiming in.
Beau Phillips says
I’ve given up radio sounding great again. I’d settle for good… whoever owns them.
Fred Jacobs says
Good is good. 🙂
Rajaram says
The point I see missing here is to see the consumption pattern of Radio programming. Consumers choices have changed. The new generation almost does not know how Radio can play a vital role to the bottom most level. Social Media seems to have taken over that role. Bad programming adds to these woes. Probably that is why the ad revenues are also dwindling and Radio is stretched beyond what it is ought to do.
Hence there are consolidations and swaps and sales. And obviously the way radio operations happen have to be looked upon as well. I am not an advocate of outsourcing, but I think every economy goes through it in this world made more open by technology. Even if there is going to be FDI, the medium has to be used in tune with the current times rather than trying to stretch it.
Fred Jacobs says
Thanks for the comment and the perspective. Part of the calculus of FDI – or foreign direct investment – is that an infusion of capital will usher in more R&D, innovation, and experimentation. There are some amazing initiatives happening in radio around the globe. Bringing them to the U.S. market could force a new era for radio that allow it overcome some of the barriers you mention. Appreciate your thoughts.
Bob Bellin says
Late to the party here, but I think foreign investment is more likely to revitalize radio than relaxed ownership caps – which would just usher in standard consolidation patterns, the inevitable job cuts and business as usual.
Someone with an imagination and a 10 figure net worth like Richard Branson might bring a new perspective and some interesting outcomes. How much is there to lose when the current big headlines of 2017 are likely to be “two of radio’s biggest companies go bankrupt” and one company not known for innovation buys another company not know for innovation?
Fred Jacobs says
I couldn’t agree more, Bob. Yes, there are inherent risks if foreign owners aren’t “vetted,” but the chances for new ideas, new money, more research, and increased innovation might stimulate American owners to up their games. Thanks for the comment.
Dave Donahue says
Back to the beginning, computer, digital, satellites, VO’s etc, did lots of advances, and push shove on FCC to allow the radio formats to change to fit and a move to throw money into the ‘cash cow’ after they all of a sudden could buy nearly unlimited stations and then the light from above said, you don’t need all the stinking air personalities and you cut the heart out of thousands of stations. FDI is a good idea, but what will it restrict on American original programming? Think about it. Allow FCC rulings to scale back how many stations they can buy. This allows huge chains to reduce stations and get out of debt. Get radio back to what it was local, run by a staff of locals. Radio started as an art form, it was turned into a sales form with no local impacts where ratings dropped any big number crunching guys in cubicles couldn’t figure that out. Neither could managers locked behind closed doors. Is this reality speaking to you. Or frankly have you as owners and investors priced yourself out of affordability in radio that can show profits on the bottom line?
Fred Jacobs says
Dave, the radio business has evolved in many interesting and circuitous ways. Foreign ownership comes with some risk, but what’s to say they’d operate their stations irresponsibly? This could be the next step in an industry that is need to new money and new ideas. Thanks for the comment.